Could a nonexempt club use the Knights of Columbus sales-tax exemption to buy equipment for facilities used by the Knights, and could it avoid tax on items bought for resale?

Plain-English summary

The club described in the letter did not qualify as an exempt organization, so it could not issue an exemption certificate for equipment bought for its own use.

The Knights of Columbus, however, was described as a Section 501(c)(8) nonprofit organization. It could buy, lease, or rent tables, chairs, maintenance supplies, and other equipment tax-free when the equipment related to its purpose. The Knights or an authorized agent had to pay for the equipment and give the vendor the Comptroller's prescribed exemption certificate. The club could make the purchase as the Knights' authorized agent and issue the certificate on the Knights' behalf.

The Comptroller separately explained that the club could give vendors resale certificates for items it would resell. If it had paid sales tax on taxable items later resold, it could seek a vendor refund for purchases within the four-year limitations period or take the credit described in Rule 3.338.

What this means for you

A nonexempt affiliate or facility operator could not simply borrow an exempt organization's status. The tax-free purchase had to be the exempt Knights of Columbus' qualifying purchase, paid for by the Knights or by an authorized agent acting for it. Goods actually bought for resale followed a different resale-certificate rule.

Common questions

Could the club issue an exemption certificate for its own equipment? No. The letter states that the club did not qualify as an exempt organization.

Could the Knights of Columbus buy the equipment tax-free? Yes, if the equipment related to the Knights' purpose and the Knights or its authorized agent paid and issued the required certificate.

Could the club act as that authorized agent? Yes. The letter expressly allowed it to pay and issue the certificate on the Knights' behalf in that capacity.

What about items the club bought for resale? It could issue a resale certificate instead of paying tax, and the letter described refund or credit options for tax already paid on resold items.

Citations and references

• Section 501(c)(8)
• 34 Tex. Admin. Code Rules 3.222, 3.285, 3.325, and 3.338

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9205L1167E14

Original ruling text

May 1, 1992

Dear ** :

Your letter, of April 15, 1992, concerning the taxability of
equipment purchased by the Knights of Columbus (KC), Council
**, has been referred to me for review and response.

You are asking whether the Columbus ** () may
purchase equipment (tables, chairs, and maintenance supplies)
for use in its facilities using the exemption granted to the
KC. You also asked if the KC may purchase the equipment under
their exemption and from their funds for use by the **. The
facilities are used by the KC.

** does not qualify as an exempt organization and may not
issue an exemption certificate of purchases of equipment for
its own use.

However, the Knights of Columbus, as a Sec. 501(c)(8) nonprofit
organization, may purchase, lease, or rent the equipment tax free
if the equipment relates to the KC's purpose. The KC, or an
authorized agent, must pay for the equipment and provide the
vendor an exemption certificate in the form prescribed by the
Comptroller. *, acting in the capacity of an authorized
agent for the Knights of Columbus, may pay for the equipment and
issue the vendor a certificate on behalf of the Knights of
Columbus.

In your letter of March 24, 1992, you stated that your club pays
sales tax "on items purchased for resale". ** may issue a
resale certificate to vendors in lieu of paying sales tax on
items that it will resell. If your organization has paid sales
tax on taxable items that were resold, it may request a refund
from the vendor for purchases that are within the four year
statute of limitations. Or, it may take credit for the tax paid
as provided in the enclosed Rule 3.338.

I have also enclosed a copy of Rule 3.222, Exempt Organizations
and Rule 3.285, Resale Certificates; Sales for Resale, Rule
3.325, concerning refunds, and our latest brochure on Tax-Exempt
Organizations, for your information.

This opinion is based on the facts that you presented. If there
are additional or different facts, this opinion may change.

If you have any questions or need more information, you may
call 512/463-4600, or 1-800-252-5555 from outside Austin. You
may write to Tax Administration Division.

Sincerely,

Gilbert Zamora
Tax Administration Division